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Collect aggressively, refund reluctantly  

Dr. Ikramul Haq

The poor genuine exporters were left begging for their refunds but fraudsters made up bogus documentation and decamped with huge amounts, unpunished and unquestioned—Tahir Jahangir, Chairman, Towel Manufacturers Association of Pakistan

The allegations levelled in article, written by Chairman of Towel Manufacturing Association that Federal Board of Revenue (FBR) is blocking genuine refunds of exporters but rewarding the fraudsters, is vehemently refuted by the apex revenue authority, claiming that the new automated refund payment system is working fine. The issue of unpaid refunds is lingering on since long. According to an ex-member, FBR, “under the income tax, the procedure is that if a refund order is issued it is invariably accompanied by a refund voucher. But on sales tax side we observe a different procedure where Refund Payment Order (RPO) is issued without refund voucher and it is up to the Finance Minister to decide when and how much amount of refund is to be released after issuance of RPO? These delaying tactics cause loss of trust of taxpayers in FBR/Government”.

FBR, after installing software, ‘Fully Automated Sales Tax e-Refund (FAST)—promised to issue refunds to exporters within 72 hours of application, but the  article alleges that this is not the case—many instances and bottlenecks are in what is labelled as an “extremely complicated computer programme”—discussed in Sales Tax refunds: the fiasco unfolding[Business Recorder, December 18, 2019]. It observes and alleges: “All recognised systems of governance allow a full avenue for appeal to a neutral umpire. So if you are accused of a crime, civil or criminal, there is a set course of appeal to the initial verdict. Here the FBR provides you with none. The FBR is the judge, the jury and your adversary. It is their job to collect as large a volume of tax as possible from the taxpayers. Obviously, a refund to them is anathema, the last thing they wish to do. Consequently, it is in their interest to delay, reduce, and withhold refunds to exporters”.

The painful episode of blocking refunds, especially of exporters, started after Ishaq Dar took oath of Finance Minister on June 7, 2013—till his fleeing the country on October 27, 2018 on the special aircraft of Prime Minster, it was no doubt a ‘dar(k)’ era that drastically damaged the economy—on assumption of power many tried to shift the blame on the coalition Government of Pakistan Tahreek-i-Insaf (PTI). Dar used all kinds of negative methods and oppressive taxes to show 20% annual growth in tax collection to please International Monetary Fund [IMF]—they in turn gave him “good reviews” and many waivers! As soon as IMF programme was over, the foreign lenders and donors started criticising his actions and policies! This holds a good warning for PTI Government as well as it is also jubilant over two good reviews and getting second tranche of $452.5 million on December 19, 2019!

The sordid story of blocking refunds was narrated in ‘Dar accused of delaying tax refunds, The Express Tribune, June 19, 2016. A report prepared by the chairman of a committee constituted by Federal Tax Ombudsman (FTO) on the complaint of Pakistan Apparel Forum held Ishaq Dar “directly responsible” for withholding bona fide refunds of exporters and others. On publication of this report at FTO’s website, Ishaq Dar became furious—he ordered its immediate removal and instructed FBR to dissociate itself from the report, which it endorsed when draft was circulated! The details of this entire bizarre saga are available in Blocked tax refunds: FTO comes under pressure, removes repot from website, The Express Tribune, July 5, 2016.

Muhammad Zubair, ex-Governor Sindh and earlier colleague of Ishaq Dar in the Cabinet as Chairman Privatisation Commission, while talking to journalists on September 27, 2017, alleged that Nawaz Sharif was cheated by Ishaq Dar. He quoted: “Dar told him [Nawaz Sharif] that everything is alright in the economy”. I interrupted him [Dar] and said no, everything is not all right. Businessmen are facing hardships due to long pending tax refunds”.

In the very first full fiscal year of his third term as Prime Minister (2014-15), Nawaz Sharif, contrary to tall claims of his economic wizards, failed to meet the third revised target of FBR. The original target of Rs. 2810 billion was first reduced to Rs. 2691 billion and then to Rs. 2605 billion. On shortfall of over Rs. 220 billion, FBR top notches received kudos from Dar, besides bonuses! On November 26, 2015, Ishaq Dar confessed [‘Culture of cheat’, The News, May 22, 2016] before the National Assembly’s Standing Committee on Finance, Revenue, Economic Affairs, Statistics and Privatization that FBR withheld refunds of Rs. 200 billion.

For 2016-17, FBR also missed the revised target of Rs.3521 billion by a margin of over Rs. 200 billion—original was Rs.3621 billion. As in past years, the collection included blocked refunds of billions of rupees and advances taken from many large taxpayers. For the fiscal year 2017-18, the target assigned to FBR was Rs. Rs. 4013 billion that was later reduced to Rs. 3935 billion but it collected only Rs. 3842 billion even after blocking refunds and taking advances, not yet due!

The target assigned to FBR for FY 2018-19 was Rs. 4435 billion, which was revised downwards twice [first to Rs. 4398 billion and then to Rs. 4150 billion]. According to FBR Year Book 2018-19 , FBR collected Rs. 3828.5 billion, showing negative growth of 0.4 percent. This pushed the fiscal deficit to record 8.9% of GDP despite the fact that during FY 2018-19 the refunds of Rs. 121.6 billion were paid, as compared to Rs.154.7 billion paid in FY 2017-18—see details in FBR Year Book 2018-19.

Strangely, but expectedly, till today nobody is punished for withholding genuine refunds. Since public officeholders and elected members favour FBR bosses, they also protect them from probe/audits. The cases of many legislators, including our incumbent Prime Minister, Imran Khan, were selected for audit for tax year 2016 but no proper inquiry was allegedly conducted.

Though majority of legislators declares meagre income in tax returns vis-à-vis their standard of living, yet FBR hardly, unless political victimisation is ordered by political masters, probes and imposes tax for unexplained assets/expenditure. This marriage of convenience, rather unholy alliance, leads to the culture of cheat and deceit in society, besides eroding the moral authority of FBR to collect taxes, wherever due.  

Never ever has FBR disclosed in its Year Books and other statements how much undisputed and established refunds remain unpaid on the closing date of the fiscal year, which must be subtracted from the gross revenue receipts to portray the correct net revenue collection. It only mentions the actual refunds issued, whereas accrued and ascertainable liability of refunds should also be taken into account to reflect the true picture of net revenue realised during a financial year and who knows better about the system of double entry, than the present Chairman FBR, a renowned chartered accountant. Will he take note of it and reveal the correct unpaid refund figures? It is a fundamental right of the citizens to know under Article 19A of the Constitution!  


The writer, Advocate Supreme Court is Adjunct Faculty at Lahore University of Management Sciences (LUMS)

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